Surprise results after Big W closure

Surprise results after Big W closure

Worried your favourite shops are about to close down? In recent times that might have been a rational fear. Australian retail spending was dreadful over the Christmas period - actually going backwards in seasonally adjusted terms.

And then, just this week Woolworths announced Big W was not performing well enough and it would close 30 stores and two distribution centres.

This comes on top of the 2018 collapse of Toys R' Us, chocolate shop Max Brenner and of menswear stalwart Roger David, among many others.

But now a glimmer of hope is on the horizon.

After two terrible months in December (-0.4%) and January (+0.1%), apparently Australians finally let loose in February. The Australian Bureau of Statistics released data on retail spending for the month today and it has shot up, as the next graph shows.

It was a big February for retail spending. Picture: ABS

This is the strongest one-month growth in the seasonally adjusted data since November 2017 and it was a surprise.

After all the retail landscape is littered with bodies. Threats to retail are coming from everywhere. Tastes are changing, as they always do. Online competition keeps intensifying. Those two factors have been with us for a while.

The economic backdrop is an extremely tough one for retailers. So this good news is an especially welcome surprise. There is, however, a reason to take it with a grain of salt. February is usually a quiet month at the shops and therefore it is not the best month to get the measure of how much we want to spend.

To understand this, we need to know what seasonal adjustment is. The seasonally adjusted numbers smooth out the retail spending numbers, as shown in the next graph. We spend far more in December than any other month. The seasonal adjustment process creates a flat series that lets us compare each month to the one before more easily.

Australian retail trade over the past three years. Picture: Supplied

Of course, such a smoothing depends on assumptions - some changes in February spending are just "seasonal," while some represent real changes in our tendency to spend at the shops. But which are which? The ABS has finely-honed processes for figuring this out and it updates the assumptions all the time. But they could still be wrong.

In reality, Australians spent less at the shops in February than in any month since the previous February, as the graph above shows. The 0.8 per cent rise in the seasonally adjusted number - which you can see as a small lift in the red line in the graph above - comes about largely because this February is better than last year's. (The blue line does not dip as far as it did in 2018.)

That's good news but it means we are claiming a "lift" in spending because of a smaller than expected fall.

Now, please don't get the wrong impression. I'm not saying the Bureau of Statistics is trying to hoodwink anyone. Seasonal adjustment is a useful way of flattening out those big spikes and evening out months of different lengths (February is especially short at 28 days) so we can compare month to month.

But with a surprisingly weak December and January, it is possible there is a change that the seasonal adjustment algorithms have not picked up yet, and there is more uncertainty than usual in what the data is telling us.

Woolworths announced it was closing 30 Big W stores over the next three years. Picture: Dave Hunt/AAP

A MUCH BETTER 2019

Doubt on the details to one side, the retail data is good news. Shop owners who may have been feeling glum on Tuesday lunch time had plenty to smile about just 24 hours later. Not only was the national data showing some signs of improvement. But the Budget gave them a big bonus too.

The tax cuts in last night's Budget will show up when Australians lodge their tax returns in a few months time. Anyone living in a household with two middle-income earners (between $48,000 and $90,000) should get two cheques for $1080 each - a total of $2160. That's a very useful lump!

If you don't decide to sensibly put it on the mortgage, and you don't decide to go to Bali and spend it there, then retailers will be very happy. I can just imagine Gerry Harvey - owner of Harvey Norman - getting on the phone today and ordering a few more containers of TVs from China. That's good news for Gerry, but it is also good news for the rest of us who work in this big money-go-round we call the Australian economy.

After a frightening beginning 2019 might yet turn out to be a better year for retailers - and the whole Australian economy - than we feared.